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S&P Materials Stocks Above 20 EMA

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AAII Bullish Percent

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DJIA High-Low Index

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For newer readers, here’s a brief overview of the key drivers behind our PayPal thesis, an overlooked global payments leader with a cash machine core business funding aggressive buybacks and a long list of growth catalysts hiding in plain sight:

The market wanted a quick breakup trade. Enrique Lores delivered a multi-year playbook instead.

There was little not to like in PayPal’s first quarter under new CEO Enrique Lores, with strong headline numbers across the board. Revenue of $8.35B beat consensus by ~$340M. Adjusted EPS of $1.34 beat by $0.07. Total payment volume came in at $464B (+11% reported, +8% FXN), nearly $20B ahead of consensus and accelerating from +6% last quarter.

TM$ grew 3% to $3.81B, beating consensus by ~$140M. Venmo notched its sixth consecutive quarter of double-digit growth. PSP volume accelerated to +11%, with Braintree back in the mid-teens and, more importantly, now contributing to profitable TM$ growth following the “fire the unprofitable customers” reset executed under Alex Chriss.

Even branded checkout, which has been the soft spot of the story and the key driver of fears over competition and cracks in the moat, showed a ~100 bps sequential acceleration and came in ahead of expectations.

Most importantly, the cash machine was on full display. Adjusted free cash flow grew 25% Y/Y to $1.7B, bringing the TTM total to ~$6.8B. PayPal took that cash and went to work, hoovering up another $1.5B of stock during the quarter (~34M shares), making our slice of the pie that much bigger without putting up a dime.

And yet, despite strong fundamentals, the stock sold off.

We attribute the reaction to a simple reality: in the short term, the market is a voting machine driven by emotion. In the long term, it’s a weighing machine driven by fundamentals. Heading into earnings, it was all voting machine.

Weeks of rumors about a potential Venmo spinoff or other non-core asset sales led to the Johnny-come-latelies positioning for a quick buck from a breakup trade: Lores comes in, slices the company into pieces, and unlocks shortsighted value overnight.

When Lores instead laid out a multi-year transformation plan centered around keeping PayPal, Venmo, and Braintree together under a unified strategy, the quick-money crowd ran for the exits.

In Lores’s own words: “At this point, I believe that the best approach is to invest in our 3 core businesses, PayPal, Venmo and Braintree, to drive profitable growth, because in each of them, we see the opportunity of making it happen… What is important is that we believe that there are significant synergies across the 3 businesses that make them stronger together.”

We agree.

Lores spent the past five years on PayPal’s board, including the last eighteen months as Chairman, before stepping into the CEO role on March 1. He knows what’s working and what isn’t. He understands the strengths, the weaknesses, and the organizational bottlenecks better than anyone. If there’s one fair critique, it’s that after half a decade inside the boardroom, investors likely wanted more detail around the roadmap and timing of execution.

But that frustration says more about the market’s time horizon than it does about the underlying business, and we are more than happy to benefit from the impatience.

What Lores did provide was a high-level strategic framework going forward, and it reads like a page straight out of his HP playbook: simplify the organization, remove layers, aggressively cut costs, modernize infrastructure, and lean heavily into AI-driven productivity gains.

To do that, PayPal is reorganizing into three lines of business, each with a single leader and clear accountability, ending the multi-dimensional matrix-style structure that Lores himself admitted had “slowed decision-making and weakened execution.”

The centerpiece of the plan is a newly announced cost program: $1.5B in gross run-rate savings over the next two to three years through structural simplification and AI-enabled automation. With FY25 non-transaction operating expenses sitting at $9.1B, we suspect there’s plenty of low-hanging fruit. Reports also point to a ~20% workforce reduction, or ~4,760 of the 23,800 employees PayPal reported at year-end 2025, in lockstep with what we’ve seen across other fintech players and the broader tech sector.

Importantly, this isn’t a slash-and-burn exercise designed to manufacture short-term earnings growth. You cannot cut your way to durable growth. The savings are expected to be reinvested into technology modernization, branded checkout, Venmo, and consumer financial services, all areas where PayPal still possesses massive competitive advantages but has under-executed operationally in recent years.

As long-term shareholders, that is exactly what we want to see.

The other half of the Lores playbook may prove even more powerful over time: aggressive share repurchases.

During his six years running HP, Lores retired 37.5% of the company’s shares outstanding while the stock climbed from trough levels of ~$10 to a peak of ~$37.

We expect a similar outcome at PayPal.

Some quick back-of-the-envelope math puts the power of PayPal’s aggressive buyback program into perspective. ~$40B market cap. ~$6B+ in annualized free cash flow. ~$6B per year earmarked for share repurchases. This means PayPal can retire ~15% of the float annually, entirely self-funded, while still maintaining a net cash position approaching $2B.

At that rate, the entire current share count gets retired in 6-7 years. That’s before any multiple expansion off today’s left-for-dead 8x earnings or any acceleration in the underlying business.

With the share count already down 25% over the past ~four years, the “magic” of buybacks only gets more powerful from here.

You would be hard-pressed to find another business of this quality trading at a ~15% free cash flow yield. Let alone a global payments leader powering the #1 and #2 most popular mobile payment apps in the U.S., processing every Uber ride and Ticketmaster order, and operating the world’s largest two-sided payment network with 439M active accounts. All priced as though the lights are going out.

So while fast money rotates toward the next narrative-driven, flavor-of-the-day trade, we will continue doing what we have always done when other high-quality companies find themselves in dislocation: zoom out, burden ourselves with the facts, and hoover up even more cheap shares alongside the company.

At the end of the day, Enrique Lores was hired to execute a multi-year turnaround, not manage the stock for a quarter. One print in, the framework is clear, the cash machine is humming, and the Lores era is just getting started.

Q1 Earnings Breakdown

10 Key Points

1) PayPal reported Q1 revenue of $8.35B (+7% Y/Y, +5% FXN), beating consensus of $8.05B by ~$340M, with U.S. revenue growing 9% to $4.88B and international revenue up 4% reported (flat FXN) to $3.47B. Transaction revenue grew 7% to $7.5B, while other value-added services rose 10% to $852M, driven by strength in consumer and merchant credit, partially offset by lower interest rates. Adjusted EPS came in at $1.34 (+1% Y/Y), beating consensus of $1.27 by $0.07.

2) Venmo delivered its sixth consecutive quarter of double-digit growth, with TPV accelerating to +14% Y/Y FXN from +13% last quarter, reaching a new high of $86.2B and coming in ahead of Street expectations of +12%. Pay with Venmo grew 34% and continues to take share from other payment methods. Management called Venmo a key component of the go-forward growth plan, with a focus on ARPU expansion through deeper attachment of financial services, including debit, credit, savings, and investing.

3) The PSP segment delivered another quarter of accelerating growth, with TPV increasing +11% to $208.8B versus +8% last quarter. Enterprise Payments (Braintree) volume growth also accelerated into the mid-teens, driven by a combination of profitable front-book growth, strong retention, and continued expansion with existing merchants. Following the segment’s multi-quarter price-to-value reset, the business is now contributing meaningfully to TM$ growth. Looking ahead, management remains focused on increasing attachment rates of value-added services across the segment, which is expected to support improved yield and monetization as the year progresses.

4) Branded checkout TPV accelerated 100 bps to $134.5B (+2% FXN) from +1% last quarter, beating expectations and showing modest sequential improvement. Meanwhile, branded experiences TPV (online checkout, PayPal/Venmo debit, tap-to-pay) accelerated to $143.8B (+5% FXN) from +4% last quarter, supported by BNPL growth of 23%, Pay with Venmo growth of 34%, and debit card and tap-to-pay spend growing 60% Y/Y. ~45% of non-vaulted customers are now experiencing the simplified checkout, with the new checkout experience, combined with financial services and BNPL, continuing to drive significant acceleration in growth. Quarter-to-date, branded checkout TPV growth has decelerated to ~1%, driven by a slowdown in travel and more muted European growth, particularly in the U.K. and Germany, with full-year branded checkout TPV currently tracking at the low end of the slightly positive to LSD guidance range.

5) Transactions per active account on a TTM basis declined 1% to 58.7, driven by price-to-value actions that affected Enterprise Payments transactions in prior quarters. Backing out PSP, TPA increased 6% to 37.2, driven by customer engagement growth in branded experiences and Venmo. Total active accounts increased 1% Y/Y to 439M (down 0.04% sequentially), while monthly active accounts grew 1% to 225M, with active account growth largely driven by Venmo.

6) PayPal generated $1.7B in adjusted free cash flow (+25% Y/Y), bringing TTM adjusted FCF to ~$6.8B. Management reiterated guidance of at least $6B of adjusted FCF for FY26, implying a ~15% FCF yield at current prices. Management repurchased $1.5B (~34M shares) in Q1, bringing TTM buybacks to $6B (~100M shares) and reducing weighted average diluted shares by 8% Y/Y. PayPal reiterated expectations of ~$6B in buybacks for the full year, which, combined with a dividend yield of ~1.2%, brings total shareholder yield to >16%. Plenty of dry powder remains, with cash, equivalents, and investments totaling $13.5B against $11.6B of debt as of quarter-end.

7) Transaction margin dollars grew 3% Y/Y to $3.81B, beating consensus of $3.67B by ~$140M, with TM ex-interest on customer balances also up 3% to $3.54B. Growth was broad-based, led by credit performance, Venmo monetization, PSP profitability, and loss improvement across multiple products, more than offsetting the ~3 pt headwind from branded checkout investments that will continue through 2026. Transaction margin of 45.6% came in line with consensus but contracted 208 bps Y/Y from 47.7%, reflecting the investment ramp and mix shift. Transaction loss rate improved 1 bp Y/Y to 0.06%, while transaction expense increased 1 bp to 0.90% on Enterprise mix.

8) Total payment volume came in at $464.0B (+11% reported and +8% FXN), beating consensus of $446.8B and accelerating from last quarter’s +6% growth. Growth was led by Venmo at +14% to $86.2B, followed by PSP at +11% to $208.8B, P2P & other consumer at +10% to $120.6B, branded experiences at +5% to $143.8B, and branded checkout at +2% to $134.5B. By region, U.S. TPV grew 11% to $300.1B, while international TPV grew 2% FXN to $163.8B.

9) Management announced a new $1.5B+ gross run-rate cost savings program to be executed over the next two to three years, rolled out in two phases: first, structural realignment by removing duplication and layers from the organization, and second, aggressive AI and automation deployment across operations, with the biggest near-term opportunities in technology development and customer support. With FY25 non-transaction operating expenses sitting at $9.1B, there is likely plenty of low-hanging fruit, and while not officially confirmed, reports point to a ~20% workforce reduction, or ~4,760 positions based on the 23,800 employees PayPal reported at year-end 2025. Savings will be reinvested into technology modernization, branded checkout, Venmo, and consumer financial services, with more detail on the cadence and reinvestment framework expected in the coming months, and with segment-level reporting expected sometime next year.

10) Management reiterated full-year 2026 guidance, calling for adjusted EPS in the low-single-digit decline to slightly positive range (vs. FY25 EPS of $5.31), with TM$ expected to slightly decline or remain roughly flat. 2Q is expected to be the toughest comp of the year, with guidance for adjusted EPS to decline high single digits (~9%, ~$1.27 vs. Street expectations of $1.34) and TM to decline ~3% (vs. Street -1%), reflecting the non-recurrence of a 1.5 pt prior-year benefit from a key payment partner renewal, ramping growth investments, and a lower prior-year tax rate.

Earnings Call Highlights

Morningstar Analyst Note

Dentsply Sirona Update

For newer readers, here’s a brief overview of the key drivers behind our Dentsply Sirona thesis, a global dental leader with a proven new CEO, a clear self-help playbook, and a cyclical inflection underway as the industry turns the corner:

Q1 Earnings Breakdown

10 Key Points

1) XRAY posted Q1 revenue of $880M (+0.1% reported, -6.7% constant currency), beating consensus of ~$842M, with constant currency sales down 4.5% after adjusting for the (2.2%) Byte headwind and a one-time institutional treatment center installation in Q1 2025 that did not repeat. At the segment level, Wellspect Healthcare led the way again (+15.0% reported, +3.4% constant currency), followed by CTS (+4.4% reported, -2.9% constant currency), while EDS (-0.9% reported, -7.2% constant currency) and OIS (-8.1% reported, -13.5% constant currency) remained the key drags. Adjusted EPS of $0.27 (-39% Y/Y) was in line with consensus.

2) Adjusted gross margin came in at 50.7%, down 560 bps Y/Y from 56.3%, pressured by lower volumes, negative segment mix (lighter EDS, the highest-margin segment), tariff impacts, and higher-cost inventory absorption rolling through from Q4 2025. Management expects gross margin to recover at least ~300 bps in Q2/Q3 as tariffs normalize following the recent SCOTUS decision and as European destocking dynamics work through.

3) Adjusted EBITDA of $129M (-22.8% Y/Y from $168M) came in roughly in line with consensus of $128.6M, with adjusted EBITDA margin contracting 430 bps Y/Y to 14.7% from 19.0%, driven by lower volumes and tariff impacts on gross profit. Encouragingly, OpEx on a constant currency basis was down ~$20M Y/Y, reflecting early benefits from the Return-to-Growth program, OpEx restructuring, and overall cost control.

4) XRAY made further progress rebuilding its U.S. commercial footprint, signing its fourth new distributor agreement of the year with Atlanta Dental Supply (effective August 1) to expand CTS portfolio access. Benco Dental also installed its first CEREC system under the new agreement ahead of schedule, an early sign that the rebuilt dealer network is beginning to convert agreements into real product flow. Combined with prior agreements (Patterson, Burkhart, and A-dec), management views the expanded footprint as a key lever for the U.S. turnaround, with commercial improvements expected in the back half as the bulk of dealer inventory build under the new drop-ship model rolls through Q2-Q4.

5) R&D spending stepped up to $44M in Q1 (5.0% of sales vs. 4.1% in Q1 2025) to support the Return-to-Growth plan, with multiple FDA and CE mark clearances during the quarter. The headline launch was Smart View-Detect, the world’s first FDA-cleared and CE-marked AI-enabled diagnostic aid. Other notable launches included the Reciproc Minima file system and X-Smart Go cordless endo motor in endodontics, FDA clearance of a first-of-its-kind dental-dedicated MRI, and Wellspect’s Surity male and female external catheters. While management did not offer specific product contribution details, they indicated that meaningful new product contribution will ramp into 2027 and continue into 2028.

6) The restructuring program remains on track to deliver ~$120M in annual savings, with benefits building through 2026 and weighted toward the back half. Key levers include unlocking P&L efficiencies through indirect cost optimization, implementing lean principles across the organization, simplifying the operating model, and rationalizing legal entities and IT systems to reduce complexity. Early results are encouraging, with constant currency OpEx down ~$20M Y/Y in Q1. Savings are being reinvested into growth areas such as R&D, clinical education, and commercial capabilities, keeping the program self-funding as the U.S. turnaround takes shape.

7) Operating cash flow improved meaningfully to $40M in Q1 versus $7M in the prior-year period, driven by favorable accounts receivable collections. Free cash flow was a use of ($12M), flat Y/Y, weighed down by stepped-up capital expenditures of $52M versus $19M last year. Improving FCF remains a top priority for management, with working capital improvement and a ~20% inventory reduction serving as the main levers over the balance of the year.

8) XRAY ended the quarter with $190M of cash and equivalents against ~$2.2B of total debt, bringing net debt-to-EBITDA to ~3.3x. The company retired $79M of debt during the quarter, an early proof point of the new capital allocation strategy at work following last quarter’s dividend elimination (~$128M in annual savings freed up). Management remains committed to maintaining investment-grade credit metrics, with debt reduction the top near-term priority before pivoting to opportunistic buybacks later this year.

9) On capital allocation, CEO Dan Scavilla reiterated his appetite for opportunistic share repurchases in the second half of the year, noting, “at this price, I’m anxious to do it because I think it’s going to be a great one to remove.” Management is prioritizing debt paydown first to preserve investment-grade credit metrics, with the goal of moving into buybacks in 2H 2026 and continuing thereafter.

10) Despite the strong Q1 revenue beat, management reiterated FY26 guidance for net sales of $3.5B-$3.6B (vs. consensus $3.58B), operational growth of -3% to -1%, and adjusted EPS of $1.40-$1.50 (vs. consensus $1.43). Management framed the decision as a matter of style, wanting at least two quarters before adjusting the guide, and noting, “I’d rather be appropriately conservative than anything else right now.” With restructuring savings building through the year and U.S. turnaround initiatives gaining traction in 2H 2026 and into 2027, the setup likely leaves a low bar for upside surprises. Management also plans to host an Investor Day toward the end of this year or early 2027 to lay out the strategic plan and the path to returning the business to at or above market growth.

Earnings Call Highlights

Morningstar Analyst Note

General Market

The CNN “Fear and Greed Index” ticked down to 64 this week from 67 last week. You can learn how this indicator is calculated and how it works here: (Video Explanation)

The NAAIM (National Association of Active Investment Managers Index) (Video Explanation) rose to 96.67% equity exposure this week from last week’s 93.79%.

Our podcast|videocast will be out sometime today. We have a lot of great data to cover this week.  Each week, we have a segment called “Ask Me Anything (AMA)” where we answer questions sent in by our audience. If you have a question for this week’s episode, please send it in at the contact form here.

Larger accounts $5-10M+ can access bespoke service anytime here.

Not a solicitation.

*Opinion, Not Advice. See Terms

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DJ Transport Stocks Above 200 EMA

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The column under the date 5/11/2026 has a letter that represents the movement in 2026 earnings estimates since the most recent print (3/12/2026). “U” means 2026 estimates are UP in the last 60 days. “D” means 2026 estimates are DOWN in the last 60 days. “S” means 2026 estimates have remained the SAME in the last 60 days. The column entitled “1yr Target Est” is the Wall Street consensus 12 month price target for each stock.

What this table is telling us is that estimates are UP. More estimates came UP for 2026 in the past 60 days than went DOWN – The Up:Down ratio was 19:10. The rest remained the same.

The cumulative 2026 earnings power of these 30 stocks was revised UP by +0.56% in the past 60 days. 2027 estimates were UP +0.02%.

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The column under the date 5/11/2026 has a letter that represents the movement in 2026 earnings estimates since the most recent print (3/12/2026). “U” means 2026 estimates are UP in the last 60 days. “D” means 2026 estimates are DOWN in the last 60 days. “S” means 2026 estimates have remained the SAME in the last 60 days. The column entitled “1yr Target Est” is the Wall Street consensus 12 month price target for each stock.

What this table is telling us is that estimates are UP. More estimates came UP for 2026 in the past 60 days than went DOWN – The Up:Down ratio was 17:11. The rest remained the same.

The cumulative 2026 earnings power of these 30 stocks was revised UP by +0.94% in the past 60 days. 2027 estimates were UP +0.32%.

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DOW Swenlin Trade Oscillator – Breadth

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NYSE Intermediate Term Breadth Momentum Oscillator

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For newer readers, here’s a brief overview of the key drivers behind our Stanley Black & Decker thesis, the world’s #1 tools company turning the page on a multi-year restructuring and a levered way to play the long-awaited housing recovery:

After four years of fixing, SWK is back to building, with the final chapter of its multi-year restructuring now officially closed.

Like several other high-quality names in our portfolio, SWK was caught offsides in the post-pandemic destock-restock cycle, left with bloated inventories and an overleveraged balance sheet just as rates ripped higher and the housing market ground to a halt. Gross margins (the #1 metric in the turnaround story) collapsed to 19.5% in Q4 2022, far below the historical mid-30% range, while net leverage peaked at 5.9x following an ill-timed acquisition heading into the slowdown.

In response, management has spent the past several years playing defense, executing a $2B Global Cost Reduction Program launched in mid-2022, complemented by a steady stream of non-core divestitures to repair the balance sheet. Four years later, the heavy lifting is complete. The cost program closed out at $2.1B in run-rate pre-tax savings (well over $13/share), and the final major step came on April 6 with the $1.8B sale of Consolidated Aerospace Manufacturing (CAM) to Howmet Aerospace. The all-cash deal closed ahead of the original H1 2026 timeline, generating ~$1.57B in net proceeds, with the vast majority already applied to debt reduction in Q2 and putting SWK well on track to finish the year at a comfortable ~2.5x net leverage.

Now that the balance sheet overhang is in the rearview mirror, management wasted no time rewarding shareholders and pivoting back to retiring cheap shares. The Board authorized a new $500M share repurchase program (~4% of market cap), with capital allocation now firmly biased toward buybacks going forward. On top of that is a forward dividend yield of ~4.3%, a level shareholders have only had the opportunity to lock in on four other occasions over the past 30+ years. The dividend itself has been paid for 149 consecutive years (the longest streak of any industrial company on the NYSE) and raised in each of the past 58. Add it all up and shareholders are being paid handsomely to wait, and that’s before any share price appreciation, which we expect plenty of over time.

With the foundation repaired, the focus shifts back to where it should be: margin expansion and accelerating organic growth, both of which remain on track to inflect higher through 2026.

Q1 adjusted gross margin of 30.2% came in line with expectations, with management guiding to ~150 bps of Y/Y expansion in 1H and ~200 bps in 2H, keeping the path to a 35%+ run rate by year end and the 35-37% long-term target by 2028 firmly intact. For context, the last time this business posted gross margins north of 35% was 2018, when EPS was $8.15 and the stock traded above $150.

On the top line, management continues to expect FY2026 organic growth in the low single digits. That would mark the first full year of positive organic growth since 2021, despite an end market that is still expected to be flat to slightly down. In plain English, that means taking share.

The engine driving the inflection is DEWALT, the $7B+ pro-focused franchise that once again delivered in Q1 and helped drive high-single-digit organic growth in the commercial and industrial channel. Meanwhile, the long-awaited inflection in STANLEY remains on track to turn positive by mid-year, while DIY-focused CRAFTSMAN is set to benefit from momentum around its largest product launch cycle since SWK acquired the brand in 2017.

The kicker is that all of this growth and margin expansion is unfolding before the housing cycle even turns, a testament to world-class execution in a tough operating environment.

Once the cycle does turn, SWK is sitting on a coiled spring of operating leverage, with upwards of ~45% of total company sales tied directly to residential construction. With shares still down ~60% from 2021 highs and trading at just ~12x forward earnings versus a 20-year average of ~18x, the market continues to overlook what we view as a beach ball of pent-up housing demand waiting to break free. When rates eventually come down and the structural tailwinds we’ve consistently pointed to (~4M unit housing shortage, significantly aged housing stock >40 years, 70M+ millennials entering peak family formation years) finally materialize, SWK should emerge as one of the biggest arms dealer beneficiaries.

Until then, SWK remains one of our favorite overlooked ways to play the theme. After four years of fixing the foundation, the world’s #1 tools company is finally back to building.

Q1 Earnings Breakdown

10 Key Points

1) SWK reported Q1 revenue of $3.85B (+2.9% reported, flat organic), beating consensus of $3.75B by ~$100M, as higher pricing (+3%) and currency tailwinds (+3%) offset volume declines (-3%) driven primarily by retail softness in North America. Adjusted EPS of $0.80 came in well ahead of consensus of $0.59 and $0.20 above the high end of prior Q1 guidance of $0.55 to $0.60, with roughly half of the outperformance driven by above-the-line operating strength (led by Outdoor) and the remainder from below-the-line items (mainly tax timing).

2) Adjusted gross margin (the #1 metric in the SWK turnaround) came in at 30.2% in Q1, down 20 bps Y/Y and in line with expectations, as operational cost improvements and higher pricing were largely offset by increased tariff expense, volume deleverage, and other inflation. Management expects ~150 bps of Y/Y expansion in 1H and ~200 bps in 2H, implying 2H adjusted gross margins of 34 to 35% and maintaining a clear path to a 35%+ exit rate by Q4 2026. The long-term target of 35 to 37% by the end of 2028 remains unchanged.

3) The Tools & Outdoor segment (87% of total sales) posted Q1 net sales of $3.34B (+2% reported, -1% organic), as higher pricing (+4%) and currency tailwinds (+3%) were partially offset by volume declines (-5%). North America organic declined 2%, Europe grew 1%, and Rest of World was flat. By category, Outdoor organic grew 1% on encouraging spring preseason sell-in, while Power Tools declined 2% and hand tools, storage, and accessories declined 3%. The U.S. commercial and industrial channel remained a bright spot, delivering high-single-digit organic growth driven by DEWALT brand investments and strength with professional end users. STANLEY remains on pace to inflect to growth by mid-year, while the CRAFTSMAN relaunch, the largest since SWK acquired the brand in 2017, is expected to build momentum through year-end and into 2027. Adjusted segment margin of 8.7% declined 90 bps Y/Y but came in line with expectations, reflecting growth investments and a higher mix of lower-margin outdoor products.

4) The Engineered Fastening segment (13% of total sales) posted Q1 net sales of $511M (+10% reported, +7% organic), driven by higher volume (+6%), pricing (+1%), and currency tailwinds (+3%). Aerospace led with organic growth of +31%, while automotive grew +4% (outpacing the market) on strong North American demand and global fastener systems for auto OEMs, partially offset by a low-single-digit decline in general industrial. Adjusted segment margin of 12.0% (+190 bps Y/Y) was driven by improved aerospace profitability and favorable automotive volume and mix. For FY26, management now expects low to mid-single-digit organic growth, slightly below prior guidance due to just one quarter of CAM contribution rather than two.

5) SWK closed the $1.8B sale of Consolidated Aerospace Manufacturing (CAM) to Howmet Aerospace on April 6, ahead of the prior H1 2026 timeline, generating ~$1.57B in net proceeds. The majority of proceeds have already been applied to debt reduction in Q2, marking the final phase of the multi-year restructuring and shifting focus toward returning cash to shareholders.

6) Management continues to make progress on the balance sheet, with SWK on track to finish the year at ~2.5x net debt to adjusted EBITDA, down from 5.9x at the end of 2023. SWK ended Q1 with $333M in cash, $4.7B in long-term debt, and $2.1B in total liquidity (including $1.8B in additional commercial paper capacity against $3.5B in credit facilities). Maintaining a solid investment-grade credit rating remains a top priority.

7) The Board authorized a new $500M share repurchase program (~4% of market cap), with capital allocation now tilted toward buybacks. Combined with the existing ~4.3% dividend yield, which SWK has paid out for 149 consecutive years (the longest streak of any industrial company on the NYSE) and raised for 58 straight years, shareholders are being paid handsomely to wait.

8) Free cash flow was an outflow of $447M in Q1, an improvement of $38M Y/Y and consistent with normal seasonal patterns. For FY26, management expects $500M to $700M in FCF including CAM-related taxes and fees, or $700M to $900M excluding them (consistent with prior guidance). Improving free cash flow remains a key priority, with the CAM divestiture reducing working capital intensity and continued inventory normalization providing additional tailwinds.

9) Management continues to execute against its tariff mitigation strategy and remains ahead of plan on both USMCA qualification and reducing China sourcing. SWK is on pace to source <5% of U.S. sales from China by year-end (down from ~20%) and to reach at or above industry-average USMCA-qualified import mix, positioning the company at parity to slightly advantaged versus competitors. Recent policy changes are expected to create a gross tariff tailwind in FY26 versus prior assumptions, though inflation in resins, freight, battery metals, and tungsten is expected to largely offset the benefit on a net basis. The base case assumes new Section 301 tariffs at prior IEEPA levels by August, with incremental Section 232 headwinds limited to ~$15M annualized and <$10M in 2026.

10) SWK reaffirmed FY26 adjusted EPS guidance of $4.90 to $5.70, with the midpoint implying +13% Y/Y growth and ahead of pre-print consensus of $5.21. Total revenue is now expected to be roughly flat Y/Y (slightly below prior due to the early CAM close), with organic revenue still expected to grow low single digits. Adjusted EBITDA margin is expected to improve Y/Y with growth across both segments. Management also reiterated its FY28 medium-term targets from the 2024 Capital Markets Day: mid-single-digit organic growth in a low-single-digit market, adjusted gross margins of 35 to 37%, FCF conversion of ~100% (+/- 10 pts), and CFROI in the low to mid-teens.

Earnings Call Highlights

Etsy Update

For newer readers, here’s a brief overview of the key drivers behind our Etsy thesis, an asset-light online marketplace inflecting back to growth after digesting the pandemic pull-forward, while aggressively buying back stock along the way:

Q1 Earnings Breakdown

10 Key Points

1) Etsy delivered Q1 revenue of $631M (+7.6% Y/Y for the Etsy marketplace, +3.1% Y/Y on a continuing operations basis), ahead of consensus of $617M. Marketplace revenue increased +6.3% to $432.8M, while higher-margin services revenue grew +10.5% to $198.5M.

2) Etsy marketplace GMS reached $2.5B (+5.5% Y/Y, +3.6% Y/Y currency-neutral), well ahead of prior guidance of $2.38B to $2.43B (+2% to +4% Y/Y) and representing a 540 bps sequential improvement from Q4. This marks the second consecutive quarter of Y/Y Etsy marketplace GMS growth and the strongest growth print in years. Both U.S. and non-U.S. buyer GMS grew Y/Y, with non-U.S. buyer GMS turning positive on a constant currency basis for the first time since 2023. Management noted growth was broad-based across all income cohorts, with the strongest performance coming from the highest household income segment.

3) Key customer metrics continued to move in a healthier direction across the board. Active buyers grew sequentially for the first time in two years to 86.6M (-2.1% Y/Y, +0.1% Q/Q), with gross buyer additions (new + reactivated) of 11.9M (+4.8% Y/Y). TTM GMS per active buyer reached $122 (+1.5% Y/Y, +1.1% Q/Q), marking the first Y/Y increase since late 2022 and the fourth consecutive quarter of sequential improvement. Active sellers grew +3.3% Y/Y to 5.6M, the first period of Y/Y growth since the introduction of the seller setup fee in early 2024. Repeat and habitual buyer counts also continued to stabilize sequentially.

4) The mobile app remains the centerpiece of the growth inflection, with app GMS accelerating to +11.2% Y/Y (vs +6.6% in Q4) and reaching ~47% of total GMS (+240 bps Y/Y). App users continue to deliver ~40% higher LTV than non-app users, driven by more frequent visits, deeper engagement, and higher conversion rates, with management seeing a meaningful opportunity to further increase app share and drive frequency over time. Non-app GMS also returned to growth at +1.0% Y/Y (vs -4.8% last quarter), the first positive print in some time, supported by SEO wins and continued strength in owned channels (push notifications and email driving GMS at double-digit rates).

5) Take rate expanded +180 bps Y/Y to 25.7%, ahead of prior guidance of 25.5%, with ~130 bps of the expansion driven by the Reverb divestiture. The remaining ~50 bps was led by Etsy Ads, where management continues to benefit from machine learning-driven improvements to relevance and seller budget pacing. Offsite Ads also contributed, benefiting from a shift in paid marketing activity toward higher-monetizing channels, while Etsy Payments saw continued tailwinds from expansion efforts implemented in 2025.

6) Etsy is leaning further into agentic commerce as a driver of incremental traffic, with partnerships across OpenAI, where they recently developed a dedicated Etsy app within ChatGPT, as well as Microsoft and Google. Data continues to support strong traffic growth and high-intent engagement from buyers arriving via agentic search, though it remains a fraction of a percent of total traffic. Etsy also began testing conversational AI directly on the platform, building two agents in Q1, one to help buyers find gifts and another to surface insights for sellers. Management views agentic as an important and growing source of discovery, particularly for a marketplace like Etsy that has high brand awareness but has historically lacked buyer consideration for the many purchase occasions it can serve.

7) Adjusted EBITDA came in at $185M (29.3% margin, +20 bps Y/Y for the Etsy marketplace), ahead of consensus of $177M and at the high end of prior guidance. Etsy gained leverage across all three opex lines: marketing fell to 27.6% of revenue (vs 28.0%), product development to 15.7% (vs 16.3%), and G&A to 9.9% (vs 11.8%). On marketing, management leaned into paid search where returns supported incremental spend, reduced lower-funnel paid social to prioritize new and lapsed buyer acquisition, and continued to shift away from linear TV toward more efficient digital channels aimed at younger demographics (TikTok, etc.).

8) Etsy generated $103M of operating cash flow from continuing operations in Q1, bringing TTM operating cash flow to $725M (-1.0% Y/Y). FCF conversion accelerated to ~50% of adjusted EBITDA during the quarter, more than 2x the prior-year conversion rate, bringing TTM FCF to $671M (-2.0% Y/Y).

9) Etsy repurchased $145M of stock during Q1, reducing the share count by 2.7M shares and marking a ~19% reduction in shares outstanding net of new issuances over the past two years. Etsy has $828M remaining on the current authorization, with plenty of dry powder, holding $1.6B in cash and investments before factoring in the pending ~$1.2B Depop sale proceeds, which management expects to use to further accelerate buybacks. On the Depop sale, management now expects it to close by the end of Q3 2026 (vs prior expectation of Q2), with regulatory clearance received in the U.S. and Germany and reviews in progress for the U.K. and Australia.

10) Management guided Q2 2026 Etsy marketplace GMS to $2.48B to $2.53B (+3% to +5% Y/Y), with a take rate of ~25.7% and an adjusted EBITDA margin of 27% to 29%. For the full year, GMS growth is now expected in the low-single-digit range, an improvement from prior commentary of “slight Y/Y growth,” with positive Y/Y growth in each quarter. Full-year take rate is expected to roughly equal 1H levels, and adjusted EBITDA margin guidance was maintained at 28% to 30%. Management noted that prior-year comps get less favorable through the year and that FX tailwinds and de minimis-driven AOV benefits will moderate, but emphasized that the underlying fundamental improvements driven by product and marketing investments will continue.

Earnings Call Highlights

Morningstar Analyst Note

We’ve had several portfolio names report earnings in recent days. Below are the key takeaways from the reports we haven’t yet covered in full. More detailed analysis to follow in the coming week(s):

General Market

The CNN “Fear and Greed Index” ticked down to 67 this week from 68 last week. You can learn how this indicator is calculated and how it works here: (Video Explanation)

The NAAIM (National Association of Active Investment Managers Index) (Video Explanation) fell to 93.79% equity exposure this week from last week’s 94.15%.

Our podcast|videocast will be out sometime today. We have a lot of great data to cover this week.  Each week, we have a segment called “Ask Me Anything (AMA)” where we answer questions sent in by our audience. If you have a question for this week’s episode, please send it in at the contact form here.

Larger accounts $5-10M+ can access bespoke service anytime here.

Not a solicitation.

*Opinion, Not Advice. See Terms

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S&P 500 Stocks Above The 200 Day MA

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NYSE Advance-Decline Volume ($NYUD)

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The column under the date 5/4/2026 has a letter that represents the movement in 2026 earnings estimates since the most recent print (3/5/2026). “U” means 2026 estimates are UP in the last 60 days. “D” means 2026 estimates are DOWN in the last 60 days. “S” means 2026 estimates have remained the SAME in the last 60 days. The column entitled “1yr Target Est” is the Wall Street consensus 12 month price target for each stock.

What this table is telling us is that estimates for the sector are UP. More estimates went UP for 2026 in the past 60 days than came DOWN – The UP:DOWN ratio was 21:8. The rest remained the same.

The cumulative 2026 earnings power of the group went UP by +2.64% in the last 60 days. 2027 estimates went UP by +2.90%.

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The column under the date 5/4/2026 has a letter that represents the movement in 2026 earnings estimates since the most recent print (3/5/2026). “U” means 2026 estimates are UP in the last 60 days. “D” means 2026 estimates are DOWN in the last 60 days. “S” means 2026 estimates have remained the SAME in the last 60 days. The column entitled “1yr Target Est” is the Wall Street consensus 12 month price target for each stock.

What this table is telling us is that estimates for the sector are UP. More estimates went UP for 2026 in the past 60 days than came DOWN – The UP:DOWN ratio was 30:0.

The cumulative 2026 earnings power of the group went UP by +76.82% in the last 60 days. 2027 estimates went UP by +32.84%.

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S&P 500 Health Care Stocks Above 20 EMA

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Pring Bottom Fisher Indicator

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NYSE High Low Oscillator

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Article referenced in VideoCast above:

“Chips and Drill Bits” Stock Market (and Sentiment Results)…

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Article referenced in Podcast above:

“Chips and Drill Bits” Stock Market (and Sentiment Results)…

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Nasdaq High Low Stochastic

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Nasdaq Up Down On Balance Volume Oscillator

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S&P 500 Percent Above 50-Day SMA

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On Monday, I joined Stuart Varney on Fox Business’ Varney & Co. to discuss markets, the economy, earnings, the consumer, Advance Auto Parts ($AAP), VF Corp ($VFC), and more. Thanks to Stuart and Maggie Edwards for having me on:

On Tuesday, I joined my friend Lou Basanese on his podcast TheBigSkinny to discuss markets, the economy, earnings, the consumer, 3 picks and a lot more. Thanks to Lou and his great team for having me on:

Intel Update

For newer readers, here’s a brief overview of the key drivers behind our Intel thesis, a once left for dead semiconductor giant with a legacy CPU and server franchise back in vogue, alongside a growing foundry business at the center of the U.S. push to rebuild advanced chip manufacturing:

A year ago, the conversation around Intel was whether it could survive. Today, it’s about how fast it can add capacity to meet enormous demand.

That single shift, captured by Lip-Bu Tan on this quarter’s earnings call, sums up the entire arc of our INTC investment better than anything we could write. The same TSMC that watched Intel’s manufacturing arm struggle for the better part of a decade is now publicly calling INTC a “formidable competitor.” The same analysts who downgraded the stock in the hole at $19 are now tripping over themselves to hike price targets. And the same Treasury that picked up its $8.9B stake at $20.47/share is now sitting on over $36B today, a ~4-bagger for Uncle Sam that will go down as one of the greatest trades in taxpayer history.

Admittedly, we were a bit nervous heading into this print, with the stock trading at ~118x earnings after a ~236% rally over the past year to levels not seen since 2000. There was clearly a lot of optimism baked in, whether from the long-awaited prospect of external foundry customers, packaging deals, or growing excitement around the CPU revival. Those factors set a high bar for Intel to clear.

The good news is that INTC didn’t just clear it. It blew it out of the water.

Revenue of $13.58B (+7.2% Y/Y) came in $1.4B above the prior guidance midpoint and ahead of Street consensus of $12.42B. Adjusted EPS of $0.29 crushed breakeven consensus, while adjusted gross margins of 41% beat guidance by 650 bps and marked the highest level in five quarters. Most importantly, no let-up is in sight, with Q2 guidance calling for revenue of $14.3B (+11% Y/Y) and EPS of $0.20 (+$0.30 Y/Y), both well above Street estimates.

The print and guide were enough to remove any remaining question marks and prove the turnaround is taking hold, sending the stock up 24% and setting fresh all-time highs.

Results were driven by demand that now stretches as far as the eye can see and is so thoroughly outstripping supply that INTC is selling chips it had previously written off as scrap. While management declined to quantify the unmet demand opportunity, they made clear it’s meaningful and that “it starts with a B.”

The bigger story is what’s driving the demand. For the past several years, the AI story has been dominated by GPUs and accelerators, with INTC and the “boring” CPU business cast as the casualty. That story is now reversing in spades. As compute shifts from training to inference, and from chatbots to agents, the historical CPU-to-GPU ratio of 1:8 has compressed to 1:4, with management seeing a path to 1:1 or even a tilt toward CPUs.

As the humble CPU reinserts itself as a foundation of the AI era, Intel, the most dominant CPU franchise on the planet, stands to be a massive beneficiary.

That’s why DCAI revenue grew 22% Y/Y this quarter to $5.1B, with operating profit more than doubling Y/Y to $1.5B. It’s why Google signed a multiyear agreement for Xeon deployment, with management hinting that other LTAs of similar scope have been signed but not announced. It’s why Xeon 6 was selected as the host CPU for NVIDIA’s DGX Rubin NVL8 systems. It’s why the ASIC business is already running at a $1B+ run rate, up more than 30% Q/Q and nearly doubling Y/Y. And it’s why management now sees double-digit unit growth not just in the quarters ahead but in the years ahead.

Then there’s the foundry business, which has gone from a cash-incinerating existential question mark to a legitimate strategic asset almost overnight. Prior to earnings, we got the long-awaited news of Intel’s first major external 14A customer commitment, with Elon confirming on Tesla’s call that he plans to use Intel’s “state of the art” 14A process for Tesla, SpaceX, and xAI on the Terafab project. This was always the whipped cream and cherries portion of our original underwriting, a thesis that’s now being validated almost daily.

Which brings us to how we’re positioned today.

When we sold half the position into the move heading into Q4 earnings at ~$55, we walked through the logic in detail on the podcast and in the weekly article. The stock had run from below liquidation value of ~$22/share to $55+ in less than a year, fully pricing in a recovered legacy CPU and server business. Any further upside was effectively the market betting on a near-term external foundry customer announcement. Hope should never be an investment thesis, and we were more than happy to book a 2.5x gain in eighteen months and let the rest ride as a free flyer.

Following this quarter’s results, we trimmed again, booking what has now become a 4-bagger in a matter of ~2 years.

The same logic applies as last quarter. At $82/share, you’re now paying for a fully recovered legacy business (originally assigned $45 to $50 in value) that’s riding the AI CPU wave, plus a foundry business that has finally started landing external customers, though still years out from converting to meaningful revenue. That’s a lot of good news and forward expectations already embedded in the price.

That doesn’t mean we don’t believe in Intel.

In terms of what INTC has already delivered to this point, the stock is without question overvalued. But in terms of what we think it WILL deliver over the next several years, with margins inflecting from trough levels, external foundry revenue beginning to convert, and a structural change in the demand backdrop for CPUs, the stock is still likely inexpensive. Both statements can be true at once. The only difference is that we’re now effectively playing with house money, with our remaining stake a free flyer on the upside scenario that costs us nothing relative to the gains already booked.

And if there’s one person we want at the wheel for what comes next, it’s Lip-Bu Tan. We’ve covered his Cadence track record before, and the math hasn’t changed. Betting against him has never been a profitable trade.

At the end of the day, markets overshoot in both directions. That’s human behavior. In the case of Intel, sentiment has moved from despondency to euphoria in a very short period of time. Our job is to take advantage of those dislocations, not get swept up in them.

Q1 Earnings Breakdown

10 Key Points

1) Intel topped expectations across the board for the sixth straight quarter, with results coming in well above the high end of prior guidance on revenue and EPS. Revenue of $13.58B (+7.2% Y/Y and roughly flat Q/Q) was $1.4B above the prior guidance midpoint of $12.2B and ahead of Street consensus of $12.42B. Adjusted EPS of $0.29 (+123% Y/Y) crushed prior breakeven guidance and Street estimates of $0.01.

2) Adjusted gross margins of 41% (+180 bps Y/Y) came in well above prior guidance of 34.5%, while adjusted operating margins of 12.3% expanded 690 bps Y/Y. Management made it clear that further margin expansion remains a top priority from trough levels of just over 36% seen in both FY24 and FY25, eyeing a path back toward 40%+ in the near term, with plenty of room to move higher over time compared to Intel’s heyday of consistent 60%+ gross margins.

3) Data Center and AI Group (DCAI) revenue of $5.1B (+22% Y/Y and +7% Q/Q) beat consensus of $4.4B. Segment operating profit of $1.5B (~31% operating margins) more than doubled Y/Y from $0.6B and rose $292M Q/Q on improved product margins, better cycle times, and stronger yields on Intel 3. Server CPU supply is effectively sold out through 2026, with factories running above 100% capacity and management noting that the unmet demand revenue opportunity “starts with a B.” Management now expects double-digit segment growth to continue through 2026 and into 2027. Intel also signed multiple long-term agreements during the quarter, including a multiyear collaboration with Google for continued deployment of Xeon processors, while Xeon 6 was selected as the host CPU for NVIDIA’s DGX Rubin NVL8 systems.

4) Client Computing Group (CCG) revenue of $7.7B (+1% Y/Y and -6% Q/Q) beat consensus of $7.1B, helped by Core Ultra Series 3 representing the strongest CCG product launch in five years and AI PC revenue growing 8% Q/Q to ~60% of the client CPU mix. That said, management is prudently planning for PC demand to weaken in the second half as memory shortages and rising component prices weigh on pricing, with full-year PC unit TAM now expected to decline by the low double digits despite near-term orders remaining robust. As a result, client revenue is expected to be roughly flat from Q2 onward.

5) Intel Foundry posted revenue of $5.4B (+16% Y/Y and +20% Q/Q), with external foundry revenue reaching $174M. Segment operating loss improved by $72M Q/Q to $2.4B on better yields across Intel 4, 3, and 18A, partially offset by an intentional step-up in 14A investment to support external customer evaluations. The advanced packaging backlog continues to grow, with management now confident these opportunities will be worth billions per customer rather than the hundreds of millions previously expected. Intel also announced a multiyear expansion of back-end facilities in Malaysia to support rising global demand for packaging solutions, which is expected to begin converting to revenue in 2027.

6) Tesla, SpaceX, and xAI committed to using Intel’s 14A process for the Terafab project, confirmed by Elon Musk on Tesla’s Q1 call, where he called it “state of the art.” This is the first major external 14A customer announcement and arrives ahead of management’s prior timeline, which had pointed to firm customer decisions beginning in H2 2026 and extending into H1 2027. Beyond Terafab, management noted that 14A yield and performance are outpacing 18A at the same point in maturity, with multiple additional customers actively evaluating the technology and PDK development progressing faster than 18A did. Management continues to point to firm customer decisions beginning in H2 2026, with Investor Day in H2 a potential platform, and extending into H1 2027.

7) Intel 18A is still early in its ramp but is tracking ahead of internal expectations, with management noting that the original year-end yield target will likely be achieved by mid-year, a meaningful pull-forward driven by a deliberate push on yields and cycle times. 18A is now powering Core Ultra Series 3 in full-volume production ramp, which, alongside Intel 3-based Xeon 6, represents the fastest new product ramp at Intel in five years. That said, 18A remains a near-term gross margin headwind given the early-ramp cost structure, with management still expecting a multi-quarter path before foundry margins on 18A reach the segment average.

8) The big driver behind the explosive growth in DCAI is a structural shift in AI workload mix that is finally tilting toward Intel’s CPU franchise. Management noted that the shift in compute from training to inference and agentic applications has already narrowed the historical CPU-to-GPU ratio from 1:8 to 1:4, with a path toward 1:1 or even a tilt toward CPUs amid the continuing migration toward inference and agentic workloads. Management is confident this structural shift in demand for the CPU franchise will be a meaningful growth engine in the years ahead, not just quarters, with strong visibility into double-digit unit growth for both the industry and Intel.

9) Capex will now be roughly flat Y/Y (vs. FY25 capex of $17.7B), compared to prior plans for reduced spending, with tool spending now expected to rise ~25% Y/Y as Intel leans into demand while pulling back materially on new space. Q1 operating cash flow was $1.1B against gross capex of $5B, producing adjusted FCF of -$2B, though management still expects positive adjusted FCF for the full year, excluding the Fab 34 joint investment buyout. The Fab 34 buyout, which closed during the quarter, repurchased the 49% JV equity interest in the Ireland facility for $7.7B in cash and $6.5B in new debt, a highly accretive deal that allows shareholders to capture the full economic benefits from a fab now hitting its stride.

10) Q2 guidance came in well above consensus expectations, with revenue of $13.8B to $14.8B (+2% to +9% Q/Q) versus Street estimates of $13.07B, and adjusted EPS of $0.20 versus consensus of $0.09. At the midpoint of $14.3B, that implies revenue of +$1.4B Y/Y, gross margins of 39% (+930 bps Y/Y), and EPS up $0.30 Y/Y. Management did flag that 2026 opex is now likely to come in above the prior $16B target due to inflationary pressures, variable comp, and targeted investments to capture the opportunities ahead.

Earnings Call Highlights

Morningstar Analyst Note

National Oilwell Varco

For newer readers, here’s a brief overview of our NOV thesis, a pick-and-shovel oilfield equipment leader positioned for an accelerating energy upcycle as offshore and international reassert themselves after a decade-plus of underinvestment:

Q1 Earnings Breakdown

10 Key Points

1) NOV reported Q1 revenue of $2.05B (-2.4% Y/Y and -10% Q/Q), in line with consensus and pre-announced results. Management estimated a ~$54M headwind to Q1 revenue from the conflict in the Middle East, noting that, adjusted for this impact, Y/Y revenue would have been roughly flat. Adjusted EPS of $0.11 missed consensus by $0.04.

2) Adjusted EBITDA came in at $177M, in line with pre-announced results, down $75M Y/Y to 8.6% of sales versus 12.0% in the prior year. Adjusted EBITDA was pressured by an estimated $32M Middle East impact, driven by higher operating costs from increased freight expenses and lower absorption at manufacturing facilities. Management continues to execute against its ongoing $100M cost-out program, having reduced global headcount by ~8% and exited more than 40 facilities since Q1 2025. These initiatives have been largely offset by tariff costs, IT investments, and inflationary pressures to date, but excluding Middle East impacts, management expects them to more than offset tariffs and inflation beginning in H2 2026, setting up improved margins into 2027.

3) Energy Equipment segment revenue of $1.19B (+4% Y/Y and -11% Q/Q) marked the fourth consecutive quarter of Y/Y revenue growth, led by continued strength in offshore production-related businesses, which drove 16% growth in capital equipment sales, partially offset by a 12% decline in aftermarket sales and services. Adjusted EBITDA of $131M (-21% Y/Y) was pressured by a lower mix of high-margin aftermarket revenue and Middle East disruptions, resulting in 340 bps of Y/Y margin contraction to 11.0%. New orders totaled $520M, up 19% Y/Y and marking the strongest Q1 order intake since 2019, resulting in a book-to-bill ratio of 80%, with backlog ending at $4.23B (-$184M Y/Y). Encouragingly, management continues to expect full-year 2026 book-to-bill at or near 100%. A bright spot within the segment remains the subsea flexible pipe business, which posted record quarterly EBITDA for the third consecutive quarter, with backlog now extending into 2028 and a book-to-bill ratio exceeding 100% for four straight years. To capitalize on that strength, NOV recently approved a $200M expansion of its subsea flexible pipe facility in Brazil aimed at doubling capacity over the next three years to address a developing capacity shortfall as offshore activity accelerates.

4) Energy Products and Services segment revenue of $897M (-10% Y/Y and -9% Q/Q) was negatively impacted by Middle East disruptions that delayed capital equipment deliveries, more than offsetting market share gains in the drill bit business and increasing adoption of digital services. Adjusted EBITDA of $96M (-34% Y/Y) was pressured by lower volumes, manufacturing absorption impacts, higher tariff costs, and inflationary raw material pressures, leading to 390 bps of Y/Y margin contraction to 10.7%. A bright spot across the segment was the composites business, which posted record quarterly bookings, resulting in backlog reaching its highest level in 10 quarters. Drill pipe orders also outpaced the past three years’ average quarterly bookings, with backlog at its highest level in 2.5 years.

5) The conflict in the Middle East created significant operational disruptions during the quarter, with quarter-end deliveries delayed, freight costs spiking to 3-4x normal levels, and offshore service and repair activity disrupted across the region. While near-term challenges are expected to persist into Q2, conditions have improved meaningfully from the height of the conflict as the ceasefire holds. More importantly, once disruptions fully normalize, management views the situation as having accelerated and amplified what they see as a meaningful new capital equipment upcycle. The global oil market, expected to be oversupplied by 2-3M bpd coming into the year, has shifted to a meaningful deficit, with ~10M bpd of shut-in production and damaged regional infrastructure requiring drawdowns of strategic reserves worldwide. Management cited industry analysis suggesting ~10,000 wells across the region are currently offline, with up to 3,000 requiring meaningful intervention, ~1,000 potentially requiring major workovers or recompletions, and permanent capacity loss potentially ranging from 500K bpd to 2.5M bpd. The work required to restore production alone should drive elevated activity over multiple quarters, and potentially longer, with management noting the market will remain undersupplied for an extended period even after the conflict resolves.

6) NOV returned $100M of capital to shareholders during the quarter through $67M in share repurchases (~3.5M shares) and $33M in dividends, reflecting the previously announced 20% increase in the quarterly base dividend. Over the past eight quarters, NOV has returned more than $900M to shareholders, with a supplemental dividend planned for Q2 to true up the ongoing commitment of returning at least 50% of excess FCF.

7) NOV continues to maintain a fortress balance sheet, with $1.34B in cash and equivalents, $1.50B available on its primary revolving credit facility (recently extended one year through 2030), and total debt of $1.72B, with the next maturity not until 2029. This implies net debt leverage of <1x and gross leverage of <2x, supporting NOV’s investment-grade credit rating.

8) Free cash flow during the quarter was an outflow of $91M (vs. +$51M in the prior year) on operating cash flow of -$26M, weighed down by Middle East-related working capital build and lower EBITDA. Despite the soft Q1 print, working capital intensity improved 400 bps Y/Y to 26.7% of revenue, with management continuing to expect full-year 2026 EBITDA-to-FCF conversion of 40% to 50% and cash generation ramping through the remainder of the year.

9) Tariff costs reached $30M during the quarter, with Q2 and the foreseeable future expected to remain in roughly the same range, as the Section 232 exclusion-related shift has created incremental cost pressure. On the positive side, NOV filed a claim for a refund associated with the February Supreme Court ruling on EPA tariffs, with a potential recovery of ~$40M not currently reflected in Q2 guidance.

10) For Q2, management expects revenue down 4% to 6% Y/Y and adjusted EBITDA of $185M to $215M (vs. $252M in the prior year), with Energy Equipment revenue down 2% to 4% Y/Y and EBITDA of $135M to $155M, and Energy Products and Services revenue down 6% to 8% Y/Y and EBITDA of $100M to $120M. The Q2 guide assumes the ceasefire holds but the strait remains closed, with Middle East impact slightly larger than Q1 but not materially different. Management noted that if the conflict ended and the strait reopened in the near term, full-year 2026 results could still come in broadly in line with 2025. Management remains highly constructive on the medium- to long-term industry outlook, eyeing late 2026 and 2027 as the environment where “all eight cylinders of NOV’s engine can fire,” a setup that has been years in the making but is being accelerated by the current disruption.

Earnings Call Highlights

General Market

The CNN “Fear and Greed Index” remained unchanged at 68 week over week. You can learn how this indicator is calculated and how it works here: (Video Explanation)

The NAAIM (National Association of Active Investment Managers Index) (Video Explanation) rose to 94.15% equity exposure this week from last week’s 79.49%.

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NAAIM Equity Exposure Index

(National Association of Active Investment Managers)

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